If you do it they will believe
Paul Krugman has a post discussing the recent Swiss move to sharply appreciate their currency, despite deflation in Switzerland. I agree with much of what he has to say, but not everything:
Two things to bear in mind. First, having in effect thrown away its credibility – in today’s world, the crucial credibility central banks need involves, not willingness to take away the punch bowl, but willingness to keep pushing liquor on an abstemious crowd – it’s hard to see how the SNB can get it back.
That’s not quite right. It’s very easy to see how they could get it back—simply re-peg the SF at 1.20/euro. The second peg would be much stronger than the first, because the markets would think the following:
“Wow, what a humiliating reversal from the SNB! The result of letting the SF float must truly have been catastrophic for them to do such an embarrassing about face after 3 days. Obviously they won’t ever make that mistake again. The new peg will be solid as a rock!”
It’s easy to see how they “can” get it back. Rather what Krugman should have said is “it’s hard to see them getting it back.” And he would have been right. I can’t imagine the SNB re-pegging at 1.2, and hence future SNB promises will be less likely to be believed. Ditto for promises from other central banks.
Update: Andy Harless beat me to it. And several commenters pointed out the SNB is already thinking about depreciating the SF. But you know they won’t go all the way back to 1.20, which means they’ll have to try much harder.
But the real problem is not lack of credibility; it is that central banks have the wrong target. If they would actually target inflation at 2%, or NGDP growth at 5%, the markets would believe them. Why wouldn’t they be believed? The markets aren’t stupid. Yes, they’ll get blind-sided occasionally as we all were by the Swiss, but (on average) markets will forecast central banks to do exactly what they will do. Do it and markets will believe.
Back to Krugman:
These days it’s fairly widely accepted that it’s very hard for central banks to get traction at the zero lower bound unless they can convince investors that there has been a regime change – that is, changing expectations about future policy is more important than what you do now. That’s what I was getting at way back in 1998, when I argued that the Bank of Japan needed to “credibly promise to be irresponsible,” something it has only managed recently.
Krugman thinks the problem is the zero bound, but that claim is simply no longer plausible. The Fed is itching to raise rates around mid-year, despite 10-year inflation forecasts that are far below 2%, and even worse the Fed is officially targeting PCE inflation, which run 0.3% to 0.4% below the CPI inflation embedded in TIPS spreads. There’s a reason markets don’t expect 2% inflation; the Fed is behaving as if it is targeting inflation at slightly below 2%. When we were at the zero bound you could have made a semi-plausible claim that it was all due to monetary policy impotence (even though that claim was false) but that view no longer has any plausibility in a world where the Fed is about to raise rates.
(In my monetary offset posts I used to get hammered by the argument, “but surely you agree the Fed would prefer inflation to be higher?” OK, where are you guys now that the Fed is about to raise rates?)
I wish I could recall the post I did around 2009 or 2010 where I said the validity of market monetarist arguments would be much more obvious when we finally exited from the zero bound. (I based that on the fact that the causes of the Great Depression became much easier to see during the long recovery period.)
The “promise to be irresponsible” argument is also false. Central banks need to promise to be responsible. They need to set a price or NGDP level target, and promise to do whatever it takes to hit that target. Krugman is wrong when he claims the BOJ has recently been irresponsible (meaning that it has generated high inflation.) It has not done so. Apart from the one-time boost from higher sales taxes, Japanese inflation has been running around 1%. That’s better than the deflation they used to suffer, but it falls short of their 2% target. Being irresponsible has nothing to do with it. BTW, the Swiss move makes me more inclined to believe the Japanese will quietly give up on their 2% inflation target.
In my comment sections I see continued confusion about central bank balance sheets. People seem to think that the Swiss needed to let their currency float to avoid a big balance sheet. Over at Econlog I explain why letting the currency float will lead to a bigger balance sheet than the previous peg (especially if you hold IOR constant—recall they could have lowered the IOR to negative 0.75% without breaking the exchange rate peg.)
Maybe the following analogy will help. Imagine a teenage girl that is depressed about her looks, and spends all day lying on the couch eating Ben and Jerry’s ice cream, and watching TV. She doesn’t want to change her behavior, but wants to look slim and pretty. What do you tell her?
Now imagine a central bank that wants to run a deflationary monetary policy, but insists it doesn’t want a big balance sheet. What do you tell it? The SNB reminds me of that teenage girl.
PS. Tyler Cowen has a good post on the ECB’s anticipated QE program. I am equally skeptical. It will probably help a little, but the good that will result is probably already priced into the euro/dollar exchange rate. That’s not nothing, but it’s far short of what’s needed in the eurozone.
PPS. Some commenters have criticized my support of fixed exchange rates. I oppose fixed exchange rates. It’s just that the Swiss 1.20 peg was less bad that what came before or after. There are degrees of badness.
Tags:
17. January 2015 at 09:26
This post is vintage Sumner. Obscurity piled on obscurity. The teen girl couch analogy does nothing to clarify his argument. And he expects us to take his NGDP target framework seriously, when it’s so short of details? Sumner answers each question with another question? Are you serious? This from a man who questions me in another thread about how OMO work (see http://en.wikipedia.org/wiki/Open_market_operation#Process_of_open_market), as if he does not know himself. As I’ve said before Scott Sumner = the Jacques Derrida of economics.
17. January 2015 at 09:39
I’ve always hated that Krugman phrase. The implication is that somehow letting millions of people remain unemployed could be viewed as responsible. I know he doesn’t mean it that way but there are too many very serious people who can misunderstand it that way.
17. January 2015 at 10:06
“Switzerland Could Act on Currency Again, Central Banker Says
Swiss Franc Is ‘Greatly Overvalued,’ Central Bank President Thomas Jordan Says”
http://www.wsj.com/articles/switzerland-could-act-on-currency-again-central-banker-says-1421501547
What can one say?
17. January 2015 at 10:07
So, not only you know exactly what the market will do of SNB return to FER,
“It’s very easy to see how they could get it back””simply re-peg the SF at 1.20/euro. The second peg would be much stronger than the first, because the markets would think the following…”
But you also have the unique answer or the problem.
“But the real problem is not lack of credibility; it is that central banks have the wrong target. If they would actually target inflation at 2%, or NGDP growth at 5%, the markets would believe them…”
Bravo! But where are the proof that only in this case the market believe them?
I think that the SNB has a serious problem of credibility, as Ambrose Evans-Pritchard put it -a problem similar to all other central banks- but not because they don’t purchase your magic medicine.
17. January 2015 at 10:10
>>There’s a reason markets don’t expect 2% inflation; the Fed is behaving as if it is targeting inflation at slightly below 2%.>>
Slightly? We’re nowhere near 2% and actual and expected inflation are falling. The 5 year TIPS spread is 1.3%, 10 year is 1.6%, and 30 year is 1.8%. It doesn’t look like the market believes we’ll hit 2% anytime soon.
Raising rates now would be an act of lunacy. They claim to be data driven, then when the data don’t support raising rates, they decide the data aren’t important.
Maybe they’ll surprise us and do the right thing, but that’s not what they’re signaling.
17. January 2015 at 10:53
How about
“Wow, what a bunch of amateurs at the SNB! They must have been confused by the result of letting the SF float. They must have no idea what they are doing to make an about face after 3 days. Obviously we can’t predict what they’ll do. The new peg will be changed in a few days again!”
Or
“Wow, neither depreciating or appreciating the SF makes any difference on output or inflation! The SNB must be impotent except in ForEx markets. Obviously the broader market won’t have to pay any attention to the SNB anymore. The new peg will be irrelevant to macro outcomes!”
Trying to model an economy based on a collection of sentences like that sounds intractable to me, though. How much of a reversal in a currency peg counts as humiliating? Does that change over time? I’m assuming hard as a rock translates to constant in the long run, unless conditions change drastically — but that sounds hard to model as well!
http://informationtransfereconomics.blogspot.com/2014/08/on-taking-people-out-of-economics.html
17. January 2015 at 11:14
Scott,
A partial explanation from the SNB
http://www.wsj.com/articles/switzerland-could-act-on-currency-again-central-banker-says-1421501547
17. January 2015 at 11:28
GMTA https://twitter.com/AndyHarless/status/556116468157661184
17. January 2015 at 11:39
Ray, You said:
“This post is vintage Sumner. Obscurity piled on obscurity. . . . As I’ve said before Scott Sumner = the Jacques Derrida of economics.”
The owls are not what they seem.
foosion, I told you so?
Luis, Yes, it’s not because they don’t purchase my magic medicine, it’s because they don’t do what it takes to hit the targets they set for themselves.
Jason, You said they might be thinking:
“Wow, neither depreciating or appreciating the SF makes any difference on output or inflation! The SNB must be impotent except in ForEx markets. Obviously the broader market won’t have to pay any attention to the SNB anymore. The new peg will be irrelevant to macro outcomes!”
I’m going to take a wild guess and assume markets don’t believe that a 20% currency appreciation has no impact on inflation, in a country that imports a large share of its consumer goods.
Thanks Edward.
Andy, You beat me to it. I’ll add a link.
17. January 2015 at 12:03
Scott, at what exchange rate would you consider ECB’s QE a success?
17. January 2015 at 12:30
Vaidas, One that led to 1.9% 5 year inflation forecasts in the German TIPS market.
17. January 2015 at 13:04
There is too much politic in money (:-) pun).
17. January 2015 at 13:05
politic[s]
17. January 2015 at 13:43
Just to follow up if still of interest: SNB president Jordan gave an extended interview to Swiss papers on the motivation for the move.
http://www.nzz.ch/wirtschaft/was-wir-jetzt-beobachten-ist-ein-massives-ueberschiessen-1.18463025
I was too generous with my assumption that the directorate does not share the confusion about the peg as a service to industry rather than an alternative to their accustomed policy instrument.
“The SNB took risk for Swiss business on its books for a long time now. We know that the now lost planning security now makes it more difficult. (…) But the peg needed to end eventually anyway.”
They are convinced that the peg had to end with a bang as Europe did not get its act together. I interpret their continued references to transatlantic monetary policy momentum divergence as a conviction that the weak Euro is here to stay and this is something for the supply side to adjust to. The peg just bought the time, but could not be maintained until Europe gets rolling:
“Monetary policy cannot control macroeconomic conditions eternally, (…). It can cushion developments for a short time, but it can’t grant every wish.”
Apparently they interpreted recent increases in the necessary interventions not as money demand, but as market distrust. I am not quite sure why he is concerned with this as Jordan emphasised earlier that balance sheet size is irrelevant. Still he says today:
“If the SNB had maintained the peg and expanded its balance sheet for months or years, it would have risked to lose control over monetary conditions in the long run.”
He also said they will be patient with negative IOR to do its magic and FX markets to return from overshooting.
Enough mind reading.
17. January 2015 at 13:51
P.S.. And yes, he said the Franc is overvalued, but he did so three times at the press conference already. In the interview he takes a re-peg off the table, but that might be editing (the NZZ editorial is in favor of the abolishment).
17. January 2015 at 15:18
Pietro, I wish I had thought of that line.
Johannes, Thanks for that info. Nothing about how they plan to hit their inflation target?
17. January 2015 at 17:45
“Johannes, Thanks for that info. Nothing about how they plan to hit their inflation target?”
Is that even possible? All I see is lower import prices and a 5000lb weight sitting on physical asset prices. They will intervene.
“They are convinced that the peg had to end with a bang as Europe did not get its act together. ”
I do not believe that. I think he completely underestimated the response and had no game plan ready for it. After intervening to the tune of hundreds of billions of dollars you just do not walk away and leave your currency completely undefended so that someone with $5,000 in an e-trade account could take your currencies value up 30% on a one lot. I would think Mr. Jordan resembled Lloyd Bridges in Airplane, when he saw that .85 print.
http://www.quickmeme.com/img/0d/0d4e26760427d1e94e17ff05bdd683a7e74014542045b08f68fa2bd5e7804a17.jpg
17. January 2015 at 18:15
Scott, given that the SNB’s move amounted a tightening, why did Swiss stock markets like it so much? It seems counterintuitive.
17. January 2015 at 21:08
I find it sad that Sumner and Harless advocate spending other people’s money that they never met, as MF points out, to further their agendas. I don’t even understand why the Swiss franc should be of any concern to them, unless they represent or feel sorry for hedge funds who were relying on the carry trade to make money off a seeming one-way bet. Sumner apparently is also upset since dropping a peg shows a central bank is not omnipotent and must bend to market forces eventually (as has happened throughout history), which Sumner feels is ‘stupid’ (an earlier post, which Tyler Cowen disagreed with) and undermines “credibility”. In Sumner’s Target NGDP framework, the ‘credibility fairy’ is very important, and without it Sumner’s Target NGDP framework collapses. As MF says, if you crowdsource money, and make it free, there’s no need for a ‘credibility fairy’–money is whatever the people want it to be, not what a central bank thinks it should be to promote some bogus, discredited ‘dual mandate’ (e.g. Philips Curve).
18. January 2015 at 02:00
I still don’t know what is wrong with a central bank having a big balance sheet. Will somebody tell me?
This seems like another one of those totems that is genuflected to, but the rationale reminds clouded in dogma and hysterics.
If anything, a large balance sheet gives a central bank a potential tool against a future inflation, although I think anything but minuscule inflation in Western economies is something we will not see again for a long long while.
Man, the central banks of the world need to get together and say, “We are all going to run the money presses hot, and ’till way after bedtime.”
18. January 2015 at 02:20
“I don’t even understand why the Swiss franc should be of any concern to them, unless they represent or feel sorry for hedge funds”
1- Maybe they feel bad for Farmer Bastien, who just last week borrowed money from his local Swiss branch to purchase 1,000 cows based off his NPV calculation of revenue from milk prices, milk prices that are quoted in dollars, of which he will now receive 20% fewer Francs. Farmer Bastien is not happy today either.
2- I have been retired for over a decade and am fascinated by this move. If you are always contemplating expected equilibrium values and price stickiness and all that econ yadda yadda, how often do you get to see it play out, and have the ability to test the robustness of your beliefs and models, against a multi standard deviation move?
18. January 2015 at 02:28
No word about hitting target inflation. But “below 2 %” is clearly in reach.
http://www.snb.ch/en/iabout/monpol/id/monpol_strat#t8
JPKoning, Swiss indices are down about 15% since the move. Am I missing something?
18. January 2015 at 02:50
@Benjamin Cole, at Sumner: read the below. If you still don’t understand, it’s like wondring who is the sucker at a poker table: the sucker is you.
Noted and award winning Economist Tyler Cowen on the Swiss revaluation: “More concretely, I am not persuaded by the view that a kind of sheer internal commitment to good outcomes, however sincere, can sustain a peg or nominal target. The outside world always impinges on the logic of commitment, and thus capital is required. This is also why I do not agree with Scott Sumner’s claim that a truly credible Swiss target, eliminating the need to expand the SNB balance sheet to make it stick, is possible circa January 2015 or for that matter anytime soon.” – See more at: http://marginalrevolution.com/marginalrevolution/2015/01/do-central-banks-need-capital.html
18. January 2015 at 05:36
Ray Lopez,
In other words, the problem is that the world is full of morons like you who don’t understand that a central bank can create money out of thin air.
18. January 2015 at 06:07
Derivs, Good points.
JP, Swiss stocks feel sharply.
Ray, You said:
“Sumner apparently is also upset since dropping a peg shows a central bank is not omnipotent and must bend to market forces eventually”
Yes, just as your posting comments over here shows you have no free will, no ability to not post comments.
And yes, of course they must bend to market forces—pity you don’t know what they phrase means. They are part of the market—precisely 50% of the market.
And I doubt anyone believe the SNB appreciated their currency due to a lack of capital.
18. January 2015 at 06:10
Prof Sumner,
You are spending so much time correcting the idea that this was a good way to keep the SNB balance sheet small, I have lost track of your own position on the size of central bank balance sheets. I know you prefer to highlight the elements of your analysis that indicate ndgplt or other well thought out targets can reduce the need for large balance sheets since they are unpopular. But should they be so unpopular? What are the downsides? Are they different for smaller countries than larger, even if in similar proportion to ngdp or other variable?
18. January 2015 at 06:29
If the Swiss central bank’s goal is to provide nominal stability within Switzerland, then it needs to be able to reduce the quantity of base money when necessary. When Switzerland’s safe have status results in what looks a temporary spike in the demand for base money, even if this “spike” might look to last for some years, the Swiss central bank must be especially concerned about the need to reverse any increase in the quantity of base money. This suggests that risk on the assets purchased to expand the quantity of base money is a significant concern.
A quantity theoretic analysis that assumes a given quantity of money with nominal values changing until the real quantity meets the real demand can lead to confusion. As Nick Rowe points out, expected future seignorage is a key asset for a central bank. But that “asset” is due to the central banks monopoly on issuing currency. How important is that to a small open economy located in the middle of Europe, especially one with tradition of financial freedom for its citizens?
Of course, to maintain nominal stability the Swiss central bank must accommodate increases in the demand for base money. As it is doing, the way to dampen increases in the demand for base money is to charge people for holding it–negative interest rates on central bank balances. And as Koenig has pointed out, they need to stop issuing high denomination currency immediately. When borrowing at a zero interest is not attractive because of risk, they need to focus on issuing currency in the sorts of small denominations appropriate for small face-to-face transactions in Switzerland.
For Switzerland, targeting consumer inflation is an extremely bad idea because of the role of imports. It would be much better to target the GDP deflator–that is inflation for Swiss products. Of course, I think nominal GDP is better still. The Swiss central bank should not be trying to combat deflation caused by lower import prices due to an appreciation of the Swiss franc. It should only focus on deflation due to lower demand for Swiss exports and import competing products due to the appreciation of the Swiss franc. Or better yet, reverse deviations of Swiss nominal GDP from trend.
18. January 2015 at 06:33
I’m with Ben Cole and Nick on the subject of balance sheets. Large balance sheets aren’t a bad thing, they are an unambiguously good thing. As a taxpayer, I’m delighted that the government is saving money. The dividend from the Fed was close to $100 Billion this year. I’d like it to be higher. Keep it going and eventually the Treasury could be a net interest earner rather than payer.
Now, it could be that the cause of large balance sheets (persistence slow growth) is bad, meaning large balance sheets are a symptom of a problem, but not a problem in and of themselves.
It could be that too large a balance sheet might cause inflation. But when inflation (and expectations) are below target, it’s absurd to say “We won’t increase the balance sheet to raise inflation expectations because it might raise inflation expectations.”
I’d be fine with it if banks stopped lending at all and the Fed had to increase the balance sheet all the way to M2. Irving Fisher, and at one time Milton Friedman, advocated the Chicago Plan of 100% reserves, which would do exactly that.
18. January 2015 at 07:05
Nick, It depends on the expected rate of return in terms of the domestic currency. It might well be negative in the modern world, in which case a large balance sheet would be costly.
Bill, That’s basically my view as well. But I’d probably lean toward raising the NGDP growth rate target as being slightly preferable to eliminating large currency notes.
18. January 2015 at 07:10
[…] Switzerland and the SFranc […]
18. January 2015 at 09:43
Scott, Swiss stocks were up in real terms.
https://twitter.com/jp_koning/status/556124764289630208
18. January 2015 at 09:47
” And as Koenig has pointed out, they need to stop issuing high denomination currency immediately.”
Bill, thanks for the shout out, but it’s not Koenig, it’s Koning. 😉
18. January 2015 at 10:24
JP Konig, that is not a normal use of “real terms.” Swiss stock were up in Euros and in Dollars. They were down in CHF, and since the Swiss price level did not move, they were down in “real terms.” Here I am defining real terms as the domestic purchasing power of Swiss investors. If the Fed announced a monetary policy action that caused the dollar to rise 20% against a trade weighted index and the S&P 500 to fall 19% in one day, we would not be saying that the market was up in “real terms.”
18. January 2015 at 11:14
“JP Konig, that is not a normal use of “real terms.””
Holy f**k, it’s spell my name wrong day.
18. January 2015 at 11:23
JP, That’s a fairly creative use of the term “real.” How did Swiss stocks do in terms of Zimbabwe dollars?
I’ll stick to JP, so that I don’t misspell your name, but I did correct the spelling in my new Econlog post, which criticizes the plan to get rid of large denomination notes.
18. January 2015 at 13:24
Scott, which plan is that?
18. January 2015 at 14:34
I misspoke, the proposal to stop issuing high denomination notes, mentioned in Woolsey’s comment.
18. January 2015 at 20:12
Scott Sumner. Wrong. Again.
Sumner: “And I doubt anyone believe the SNB appreciated their currency due to a lack of capital.”
But this is belied by this post:
Gavyn Davies on the Swiss central bank and why it folded –
“Many economists believe that balance sheet losses are irrelevant for a central bank, so they should play no role in policy. But the SNB is 45 per cent owned by private shareholders, many of whom are individuals, who receive dividends from the SNB. The rest is owned by the cantons, which have been complaining recently about insufficient cash transfers from the SNB. – See more at: http://marginalrevolution.com/#sthash.BndgDf0Y.dpuf”
Poor Sumner, always behind the curve. A while ago I thought Sumner chickened out when he declined to explain the reasons behind the Russian devaluation, claiming no expertise. Now I see he is simply weak in the one area of economics that has practical application: micro-economics.
19. January 2015 at 01:13
Ray has a pathetic sort of obsession – he is desperate to prove everything Sumner says is wrong. I don’t really know why, is it linked to the recent public mental breakdown Ray had in econ blogs?
Every time he thinks he has found someone who disagrees with Scott (let’s ignore that poor Ray has terrible reading comprehension, and so is usually wrong about the disagreement anyway), he dutifully posts it as correct and wise. Note the ridiculous big-noting of people who disagree with Scott: “noted and award winning” Tyler Cowen, as though with a few adjectives Ray deigns Tyler Cowen the respect he desperately needs.
This is Ray’s special stupidity – the more links to Wikipedia, the more adjectives, the more sardonic wisecracks, the smarter he feels.
19. January 2015 at 06:52
Ray, Gavyn says their huge loss of capital at the SNB (13% of GDP) was CAUSED by the very policy that you say was motivated by low capital holdings.
Ben, You said:
“This is Ray’s special stupidity – the more links to Wikipedia, the more adjectives, the more sardonic wisecracks, the smarter he feels.”
It’s possible that Ray has some sort of hidden agenda. Perhaps this is an academic experiment—what would happen if someone tried to be a sort of perfect internet fool, saying nonsense in each comment. Sort of like the famous Sokal hoax. Perhaps he has a weird sense of humor—that’s been my assumption, as surely no one who can type could possibly be that dumb. Or maybe he’s posting these comments from an insane asylum. The thing I like best about Ray is that he maintains his perfect confidence after being shot down again and again. Sort of like a movie character like Inspector Clouseau. Nothing fazes him. You gotta respect that.
19. January 2015 at 09:19
I actually think the FED is hiking at about the right time. Especially since they seem to not like interest rate volatility.
NGDP is running pretty well right now. Which is a far better indicator than current low inflation readings which are primarily due to positive supply shocks in my opinion.
I’d probably prefer waiting to hike rates until the economy forces you to. But Yellen probably prefers to not be placed in a position to have to hike rates quickly so for her desired path of rates its probably about the right time to hike late summer or fall.
If she hikes slowly we probably end up completely filling the output gap at some point during that process.
300k jobs a month is a lot. Inflation will come when everyone has a job.
19. January 2015 at 18:59
I think you are taking Krugman’s joke about “irresponsible” too seriously. I think he means the have to convince markets that they are willing for inflation to be higher than the “target.” The liquor they should be pushing is higher inflation (or NGDPL) on an abstemious crowd of inflation hawks and gold bugs, the Very Serious People. Every VSP knows that a large central bank balance sheet is unsustainable/ irresponsible/ dangerous. The US has no monopoly on VSP.
19. January 2015 at 19:48
@Sumner – “Ray, Gavyn says their huge loss of capital at the SNB (13% of GDP) was CAUSED by the very policy that you say was motivated by low capital holdings.” – I think we are actually in agreement here. I am saying I believe the same thing as Gavyn and you: the Swiss central bank, being owned by caring cantons who depend on dividends from it, rather than careless and indifferent taxpayers as in other countries, was tired of losing money from having the Swiss franc tied to the Euro, see more below. From the below it appears that one of your points or that of your followers was perhaps good, that being the franc should have maybe been tied to the dollar instead of the euro, as this is still generating a profit, though perhaps the Swiss are OK with just cutting their losses.
And no, I’m not posting from an insane asylum nor part of an academic social science project, sorry tinfoil hat kookoo.
RL
Bloomberg: Jan. 9 2015- The central bank, based in Bern and Zurich, will resume its annual payout of 1 billion Swiss francs to the federal government and the cantons, and also pay a maximum dividend of 15 francs per share to investors. For 2013, the SNB scrapped its annual payment after a 30 percent drop in the price of gold caused a loss of 9 billion francs.
Last year gold gained 10 percent in franc terms, while the dollar appreciated more than 11 percent against the Swiss currency. The euro declined about 2 percent as investor anxiety about the region’s feeble recovery and Russia’s economic crisis kept up interest in the franc as a safe investment.
The SNB gold holdings recorded a 4 billion-franc valuation gain last year, while the profit on its foreign-currency positions amounted to some 34 billion francs, according to preliminary numbers today. Final figures are due March 6.
20. January 2015 at 06:22
Thomas, I know what he means, but I still disagree. You need to always try to hit the target. His proposal is for inflation above target.
Ray, You said:
“I think we are actually in agreement here. I am saying I believe the same thing as Gavyn and you: the Swiss central bank, being owned by caring cantons who depend on dividends from it, rather than careless and indifferent taxpayers as in other countries, was tired of losing money from having the Swiss franc tied to the Euro, see more below.”
A chill went down my spine when I read that you agree with me. No need to worry, my view is exactly the opposite of what you express here. The Swiss lost no money when their currency was tied to the euro. They only lost money when they ended the peg.
Thanks God, all is right with the world. If you actually understood something I had said it would have upset my entire worldview. You would no longer have been the perfect fool
22. January 2015 at 21:17
“The Swiss lost no money when their currency was tied to the euro. They only lost money when they ended the peg.”
What, did Swiss Francs disappear from existence?
No, they did not lose money when they ended the peg, and they did not lose money when their currency was tied to the Euro either.
The losses were on certain individuals, many in Switzerland, many abroad, and the best way to understand gains and losses is according to individual preferences, which aggregate statistics cannot measure.